California Quake Insurance Agency Chief Steps Down

The head of California’s $7-billion earthquake insurance agency abruptly resigned Monday after a long, closed-door meeting of the agency’s three-member governing board.

David Knowles, a former Republican state assemblyman, stepped down as chief executive of the California Earthquake Authority, effective Jan. 16.

Neither Knowles nor any board member gave a reason for the resignation. When reporters attempted to question him, Knowles fled down the hall.

The resignation came after the board met behind closed doors for more than an hour and was not made public until early evening.

Knowles, whose appointment to the job three years ago rankled Democrats on the board, had never been able to win the confidence of some board members, particularly state Treasurer Phil Angelides.

A chief of staff to former Insurance Commissioner Chuck Quackenbush, Knowles was given a four-year contract by a lame-duck Republican majority in December 1998, three weeks before the board was taken over by Democrats. Angelides and Gov. Gray Davis, who sits on the board, called the Republicans’ contract decision ill-timed and said it would force them to work with a manager who was not their choice.

Under the terms of Knowles’ contract, he must be paid a year’s salary as severance if he is terminated without cause. To fire him for cause, the board would have to have evidence of dishonesty, disloyalty or failure to perform his duties. His contract called for him to be paid a base annual salary of $160,000.

In a news release, Knowles said he had spent “a wonderful three years at the helm of this unique organization” and would now explore opportunities in the private sector.

Chairman J. Clark Kelso, who sits as Davis’ surrogate on the board, issued a statement commending Knowles for his service and noting that under his leadership the authority “grew stronger.”

Angelides, who has questioned the financial structuring of the agency and pushed the governing board to order outside examinations of its management, did not comment on the resignation.

In recent months, Knowles has raised questions in internal memos about the role of Angelides’ office in one consultant’s review of the agency.

His concerns were echoed by Kelso, the chairman, who said at a recent meeting that the state was being billed $5,000 by Tillinghast-Towers Perrin for phone calls with the treasurer’s office. Kelso said he had “some doubts” about whether the consultant was maintaining its independence.

The authority provides earthquake insurance to 816,837 California homeowners and renters. It can call on more than $7 billion in reserves in the event of a major earthquake.

The agency was created by the Legislature in 1996 after heavy lobbying by insurance companies that had paid out more than $12 billion in claims from the Northridge earthquake. The companies said they could no longer afford to write homeowners’ coverage in California if they were required to write earthquake insurance.

In addition to the governor and the treasurer, the state insurance commissioner sits on the governing board.

In recent years, the authority has struggled with a declining client base, as memories of the Northridge earthquake fade and consumers complain about the cost. The authority offers less coverage--at higher prices--than consumers got from private companies before Northridge.